The new CEO

Ben Heineman Jr, former general counsel at GE, has tackled the ever-important governance debate in a new book, High performance with high integrity (May, Harvard). The slim volume, which is presented as a memo to a CEO based on Heineman’s 20 years at GE, would itself be a good memo to senior management from anyone wanting to highlight the importance of compliance.

Since leaving GE in 2006, Heineman has been teaching at Harvard University’s John F Kennedy School of Government and Harvard Law School and is senior counsel at Wilmer Cutler Pickering Hale & Dorr. The book was ‘an evolutionary process,’ he says in an interview. ‘It wasn’t a program that sprang full-grown from the chairman’s forehead.’

By the end of the 1990s, lessons learned dealing with ombuds and anti-corruption at GE had codified Heineman’s ideas on good governance, especially the importance of linking pay for performance to integrity. That link was the idea behind the book. 

Since Enron, Heineman has seen the CEO’s role become more integral to maintaining the ethical standards of a company. Key relationships exist between shareholders and the company, the board and management, and the CEO and employees; this last is the locus for the fusion of high performance and high integrity.

CEOs still need to have key characteristics such as a commitment to culture and organization, as well as essential skills and knowledge of the business. But directors should apply a broad and flexible strategy to test whether integrity is being integrated with performance, insists Heineman. The book offers a systematic rundown of ways to do this: audit staff reviews of policy issues, reports on compliance, reports from third-party experts, reviews of concerns and violations, trend assessment, early-warning systems and employee surveys. He also suggests the board meet with the general counsel alone to ensure frank discussions.

While championing integrity, Heineman criticizes corporate social responsibility (CSR). ‘Corporate citizenship… is a far more useful framework for assessing the appropriate role of business in society than the erstwhile lens of CSR, which, by its terms, ignores core economic performance,’ he says. ‘By focusing on business issues, the term incurs better long-term focus, not the tunnel-vision focus on increasing shareholder value.’

That long-term focus is achievable only if the ‘CEO really wants to drive it,’ says Heineman. ‘Obviously the CFO and general counsel are also critical in terms of figuring out how risks can be abated and mitigated through education, training, systems and processes.’ And it is vital for the general counsel to maintain independence to provide objective assessments, for the benefit of the company and its shareholders, he concludes.